Monday, April 02, 2012

Cheating on the final exam to get an A doesn't mean you mastered the subject. Yet cheating is all we have in America because sacrifice and adult trade-offs are too painful.

We all know there is no shortcut to anything worth having--mastery, security, wealth-- yet all we have in America is another useless, doomed shortcut.Insolvency is scale-invariant, meaning that being unable to live within your means leads to insolvency for households, towns, corporations, states and national governments.

There is no shortcut to living within one's means. Expenses must align with revenues or the debt taken on to fill the gap will eventually bankrupt the entity--even an Empire.

We know this, but all we have in America is the shortcut of borrowing more to fill the gap between revenues and expenses. The Federal government is borrowing a staggering 40% of its budget this year--and it has done so for the past three years. Despite all the fantastic predictions of future solvency, the cold reality is that no plausible level of "growth" will close the gap: either expenses must be cut by $1.5 trillion or tax revenues raised by $1.5 trillion or some combination of those realities.

The Keynesian Cargo Cult (TM) would have us believe that if we keep pursuing the easy shortcut of massive borrowing, eventually "growth" (in what, the Cargo Culters never say) will magically outrace the soaring costs of servicing all this debt they assure us is "necessary."

We've already borrowed and squandered over $6 trillion of future citizens' money in deficit spending over four years, 40% of the entire Federal budget. Is the current tepid "recovery" all we got for the shortcut of massive deficit spending? Is there any rational reason to believe that borrowing and blowing another $6 trillion will generate anything other than the same flatline we "bought" with the first $6 trillion?

We all like shortcuts because they minimize the pain and sacrifice required to reach a destination. But there is no shortcut to mastery of a difficult skill or subject; cheating on the final exam to get an A doesn't mean you mastered the subject. Yet cheating is all we have in America because sacrifice and adult trade-offs are too painful.

Shortcuts are a way of avoiding the risks and costs of innovation. Rather than face up to the reality that the way we "do business" on a national scale is broken, we just borrow another $1.5 trillion from future citizens every year.

Does anyone really think we can afford thousands of fighter aircraft that cost $300 million a piece? Does anyone really think we as a nation are "on the right track" when our sickcare system sucks up 18% of our entire GDP of $15 trillion, double the percentage expended by other developed economies? Does anyone really think burdening students with $100,000 for four years of university (the equivalent of a home mortgage) is sustainable?

No one who looks at any of these programs, the demographics of the nation and the scale of the gap between expenses and revenues can reach any other conclusion but bankruptcy: bankruptcy via currency failure (hyper-inflation or a "new dollar") that wipes out the financial wealth of the nation or plain old default, or the renunciation of unpayable debts and obligations.

Allow me to repeat the salient point: Shortcuts are a way of avoiding the risks and costs of innovation. What we desperately need is a military machine that innovates away from weapons systems the nation simply can't afford, not one that relentlessly pursues the "shortcut" of borrowing to pay for what is unaffordable.

What we desperately need is an education complex that innovates away from a bloated, unaffordable system of higher education that is living off the shortcut provided by subprime student loans, a system the nation simply can't afford. Where is our shame in turning students into debt-serfs to support what is clearly unaffordable? Student loans are just another shortcut, which is all America has the stomach for now: push the problem into the future with "cheap" debt.

Debt is never cheap. Debt is a shortcut.

What we desperately need is a healthcare system that innovates away from an out-of-control system the nation simply can't afford, not one that relentlessly pursues the "shortcut" of borrowing to pay for what is unaffordable so the Status Quo can avoid any sacrifice or change.

We have fallen so far from an adult understanding of the world that we cannot even dare to speak the truth about our shortcuts and about reality: we need to cut Federal spending by a third, or raise tax revenues from $2.5 trillion to $3.5 trillion: a 40% increase. Yes, the top 1/10th of 1% should pay at least what we self-employed people pay, 40% rather than the Mitt-Romney rate of 17%--but anyone looking at the data knows that raising taxes on the top 1% will notgenerate $1 trillion more annually. That is just another "shortcut" fantasy in which someone else makes the sacrifice so nothing has to be cut.

We need a healthcare complex that cost 50% less--yes, half, so it aligns with the percentage of GDP nations like Japan, Australia, etc. spend on healthcare, i.e. 9% of GDP rather than the 18% of GDP we pay.

The entire higher education "industry" has to innovate to the point that people can afford a university education without obscene subprime loans.

I know, I know--it's all "impossible." It was also "impossible" that the Titanic could sink, but sink it did. What's impossible is "borrowing our way to prosperity" and avoiding any innovation, pain and sacrifice by borrowing trillions and trillions of dollars each and every year, with no yield other than sustaining a bloated, failed unsustainable Status Quo for another year.

We as a nation are in effect cheating on the exam: yea, we got an A. But we've learned nothing, and have no stomach for the risks of real innovation. It doesn't take a genius to see our real grade: F.

Posts will be sporadic this week as I'm taking some time away from the machine.

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